King Arthur - Monty Python and the Holy Grail said:
The Six Characteristics of Money
We are roughly a century into the grand experiment with a central bank fiat monetary world order (half a century on a pure fiat system). For many people, pure fiat money is all that they have ever known. The lessons of history with respect to money have been ignored, but not forgotten.
Over thousands of years of civilization, people have used many different mediums for money. The accumulated wisdom of those years are often distilled into these simple truths:
The Federal Reserve said:
These functions and characteristics of money used to be well understood, but do not seem to be taught in schools any more.
Fiat money has failed to fulfill it's function as a store of value. Inflation has caused the US Dollar to lose significant value over the years:
Federal Reserve Bank of St Louis said:
A Dollar’s Worth: Inflation Is Real | St. Louis Fed
research.stlouisfed.org
As of this writing, the US Dollar is still fulfilling all six characteristics of money, but we may be nearing the point when acceptability comes into doubt - whether globally from dedollarization efforts or nationally from a currency (debt) crisis.
Cashless Societies
As poorly as fiat money has performed as a store of value over the last century, it at least had one redeeming quality. Physical cash was still a bearer instrument that allowed for financial privacy. Two parties could engage in trade (or commerce) without need of engaging any third parties or middlemen for payment clearance.
That is slowly changing as we drift towards a cashless society with consumers willingly choosing to use electronic payment systems, banks/atms restricting or hampering access to cash and anti-money laundering laws/rules discouraging cash businesses (more on that a bit later).
Seventh Characteristic of Money
It is the advent of computing technology and power which facilitates both a digital alternative to physical cash and the systems for surveillance and control that comes with third party clearing functionaries. This is new ground for monetary systems - there is no direct historical analogue for what is developing today.
That is probably why history only records six characteristics for money. It is with the development of digital money systems that a seventh characteristic for money becomes apparent:
Money should be free of counterparty entanglement
Where digital money systems require even the most basic transactions to involve third parties for payment clearance, there is no guarantee that money will fulfill it's function as a medium of exchange.
Digital Money Trades Convenience for Liberty
There are currently three forms of digital money: central bank digital currency (CBDC), bank credit (electronic checking, credit/debit cards) and decentralized cryptocurrencies.
CBDCs and the various forms of bank credit all require at least one intermediary in the payment clearing process. People require their permission in order to effect (or clear) any transaction. In order to use these systems, people must cede control over the ability to conduct trade to the (one or more) third party clearing agent(s). In addition to this third party risk, there is a deprivation of privacy as all transactions are monitored, recorded and data mined.
Decentralized cryptocurrencies also depend upon a third party agent to clear a transaction, but in this case, the third party agent is a decentralized block chain - there is no central authority asserting control over the system, so there is less risk of central authority malfeasance. Transactions are necessarily recorded on a blockchain, but it is possible to obfuscate wallet ownership, so maintaining a degree of privacy is still possible, though not as ideal as using a true bearer instrument.
Anti-Money Laundering is Code for Financial Surveillance
There are tidal forces at work to deter the use of cash. As mentioned previously, the drift towards a cashless society encompasses consumers willingly choosing to use electronic payment systems, banks/atms restricting or hampering access to cash and anti-money laundering laws/rules discouraging cash businesses.
The latter prong is particularly troubling as it is the lynchpin justification for both algorithmic debanking and the war on crypto. It's the fulcrum over which the seesaw of financial freedom teeters between security and liberty irrespective of the medium of money.
Sound Money for the Future
As nations around the globe accelerate their work on CBDC development, there are some glimmers of hope for people who would prefer real, sound money. Money that respects both the three functions of money (including the store of value) and the seven characteristics of money (including no counterparty entanglement).
First, there are nascent efforts amongst various States to prohibit CBDC use. There has been some effort at the national level to curb CBDC development as well, but the champion of that effort is leaving Congress and it's not clear who, if anyone, might pick up that torch.
Second, thanks in large part to the efforts of the Sound Money Defense League, there is a growing movement amongst the States to recognize gold and silver as money. There are several levels to these efforts ranging from elimination of sales and capital gains taxes to promoting government payment systems to allow citizens to pay taxes or government (licensing) fees using gold and silver.
Third, some States are beginning to develop State owned and managed precious metals depositories. In 2023, Texas had several bills introduced that would have expanded the State's use of their gold depository including one that would have established a gold backed crypto token.
These State efforts may eventually achieve a critical mass just like the legalization of marijuana efforts and lead to a change in the national laws. Ideally, America might go GAULT and lead the world on the path back to real, sound money.
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